The profit potential on the desktop and the pure web has always outstripped what iPhone apps are capable of. If it's a labor of love or if you just love Apple, by all means, develop for the iPhone. If profits are your goal, the iPhone is a severely limiting choice, for freelancers especially.
His entire analysis is basically taking the revenue total for all apps, divided by the number of apps, and saying each developer only makes an average of $3k per year. Sorry, this is not a good analysis. Some people give their apps away for free. Some quality apps make millions. This doesn't mean the opportunities are not there.
A similar analysis could be done of PC shareware software authors, with similar results.
Count of total apps paid compared with Count of total apps free has probably very little correlation with app store revenues. The best case (equal sharing) isn't realistic, as we all know that some apps generate hundreds of thousands of dollars over their lifetime.
> So the best case of how few apps get to divide that 1.43 Billion dollars over the past 2 years, is 164,000 actual apps
Ads, until the introduction of iAds, would not have gone through apple, and therefor would not count towards total revenue.
You do have a point with in app purchases, but I doubt that they would significantly skew the numbers - they would make them worse for developers of paid apps, in fact. Given the other optimistic decisions the article has when dealing with numbers, I think that ignoring in app purchases fits with it: it's a best case scenario for paid apps.
It would be quite interesting to see how much money has been made through in app purchases, though. Not merely anecdotes, but the percentage of free apps which have in app purchases, and the average/median income through in app purchases in those apps.
Nope, that's not what it is. He explicitly states that he excludes the free apps in the revenue analysis. He uses a combination of numbers from Apple and from other 3rd party services to come to the median revenue per paid app at something like $680/year.
He also fully acknowledges that there are some extreme examples that make it big, but that half of all paid apps are currently making less than $680/year.
I'm not sure I buy that a typical iPhone app costs $35,000 to develop. Considering the simplicity of most apps, combined with the fact that many apps are effectively the same program with some content alteration, it seems like a really inflated figure.
It doesn't really make much difference, for the purposes of his analysis. Let's say a typical app costs $1500 to develop. If his other numbers are right, that typical app would take about 2.5 years to break even. His argument is that, on average, developing an iPhone app is, in itself, a fairly dismal economic proposition.
However, making, say, 80, spending time promoting them, and perhaps having a few of those be moderate successes may make this a much more viable option. I have a friend who's pursuing this option of making multiple apps (not sure he's to 80 yet, but will likely surpass that in the next year).
I agree, the chance of one app being the runaway success that affords one an early retirement is pretty remote, but the tech press loves to promote the huge success stories, and many others love to follow them.
If you are making 80, or even 20, chances are you're not really making apps but repackaging offline or online content in the form of an app and that's a rather different niche. It's also one that Apple is making efforts to squish, although I'm sure it will continue to thrive on Android and other non-restrictive markets.
I can say that in the case of my friend, it's not repackaged content, but actual real apps. They tend to be somewhat on the basic side, but are nonetheless 'real' apps in the sense of having real hand programming behind them and such. FWIR, he's using Titanium, which makes it pretty easy to do basic apps fast (but still native apps all the same). Whether Apple will continue to let Titanium exist on the iOS platform is a whole other question :)
You can treat apps the way the music industry treats songs with the ambition that 1 in 100 is a "hit", and cover your losses with the success of the few...
...or you can provide a unique app that serves an existing need and charge a reasonable price (far above the typical app store prices).
There are countless examples of the latter, and not only are they successful financially but they serve to raise the standards of quality and compensation for the other type of participants.
> but the tech press loves to promote the huge success stories, and many others love to follow them.
One of my friends met the developer of Air Horn.
The #1 downloaded free app for endless weeks.
He said the guy had over three hundred apps on the App Store until he hit it big.
Really big.
Yup. Several hours each. $100 to apple. And $5 for Brushes to make icons. No other costs. Comes out under $1500 using the same rate I do Rails contracting at.
I agree. It obviously possible to spend that much, but many apps could be a damn site cheaper (you can put together a lot in something like Lua/Corona in a few days).
It reminds me about from in 2000, people were saying the average e-commerce website costs $250k-$1M to develop.
I think it depends who you ask. If you ask the average BigCo, how much it costs, you might get that answer, but the average hacker will probably give you a very different one.
"Now the heartbreaking news. Lets factor in our development costs. Again, independent source, the Internet Retailer reported on May 1, 2010, that most apps cost between $25,000 and $50,000 to develop."
These numbers were really taken out of the ass of a troll.
Interesting analysis, but I'd like to see the numbers for apps that are actually maintained and marketed vs. some guy who hacked up an app and never fixed any bugs or improved it based on feedback. I suspect the number get better if you filter out the crappy unmaintained apps (but of course, this isn't an easy data set to obtain)
I agree, there are a lot of apps that didn't take the developer more than 5 hours to put together. Earnings made by well made apps is probably much higher.
Yep, Half of all developers will earn less than $682 per year assumes the average developer produces 1 app. Also, most apps revenue falls off over time so a more realistic number is 80% 682 * 2 probably 1091$ in the first year and 272 in the second.
If someone is churning 20 in a month and then getting 1364$ * 20 = 27,280$ over two years for one months work that's not bad.
PS: The average app has probably only been out for 1 year so it may be reasonable to double these numbers. Basically, anything released yesterday is unlikely to have generated much revenue, averaging ALL apps over a 2 year earning period is silly.
"Full Analysis" seems like a bad title for this post.
First off, in app purchases are not included. Secondly, his argument against free apps is simply that the reach is smaller than other platforms. Finally, he acknowledges that the median paid app get fewer than 1000 downloads.
The 25-50K number for development costs is way off for the median app. Something like $5K-$10K is more in line for most of the apps I'm seeing (but I work cheap), and I've done a couple small ones (probably more representative of the bottom half of the distribution) for clients in 3 days' time.
None of this refutes his point, which is that developing for iphone is a suboptimal use of marketing/advertising dollars. Even if you'd assume his numbers had a 100% error margin, you still couldn't get iphone apps to work.
His analysis of free apps doesn't really do that segment justice. He totally ignored the mobile ad network space and addressed only a portion of what the market seems to be by focusing on Hilton and Walgreens. I'm not sure those cases are worth refuting.
Yes, I did. What I was expecting to see for free apps was something along the lines of using, say, AdMob metrics (http://metrics.admob.com/) and his estimate of the number of free apps to come up with some rough idea of what the average iPhone ad-driven app makes as revenue. That would have been more in line with the section of the post about paid apps.
Simply saying that targeting an iDevice leaves out 97% of the total population might be meaningful to an advertiser trying to gain a wide reach, but it means less to a developer, who is mostly interested in 1) getting an app installed on the device and 2) getting impressions. The fact that the average iPhone user has downloaded 80 free apps is a good thing for a developer.
I'm not sure I understand the confrontational tone.
So maybe developers are advertisers, but they are not buying ads, they are selling ad space in their app. The numbers for iPhone and iPod Touch devices from last September should be interesting to developers (http://techcrunch.com/2009/11/09/admob-is-approaching-100-mi...):
In September, AdMob served up 10.2 billion ad requests across 15,000 mobile Web sites and apps. About 28 percent of those were from iPhones and iPod Touches, with Android growing fast, making up another 7 percent. And if you look at only smartphones, Apple devices accounted for 48 percent of ad requests, with Android coming in second at 17 percent.
That's nearly 3 billion iPhone/iPod impressions in a month, just from AdMob. There are some key pieces of missing information - like the breakdown of the 15,000 request sources, especially web app versus native app - that would enable some more interesting analysis. But just saying that the iPhone reach is small doesn't really address the usage patterns of iPhone users versus other smartphone users.
Maybe you can't make decent money on ad-driven apps. I don't know. I haven't tried. The closest I can come to any information are a few anecdotes from usenet posts that claim anywhere from 10's of dollars to 100's of dollars a day in ad revenue. Not useful at all. But that doesn't make saying that iPhones are only 3% of the market a "full analysis."
I'm confused by the limited focus of your statement. Wide reach is important to a marketer who helps their company by making an impact on sales but a developer doesn't care about reach because ... why?
As a sole developer, you require not only the technical knowledge to complete the initial job of writing the software that attracts the traffic to generate revenue, but you also must rely on yourself to place and promote it adequately to have significant returns enough to cover both investments of time and energy.
"80 apps" is great news for a developer if a good percentage of them are yours, serving your ads. Otherwise, its at best 1/80th of a chance they are running your ads, but probably worse as each app is not created equal. If yours is a "killer app" that is use most often, its more than likely not ad-driven unless a guy likes playing iChess on the shitter.
All of the data you provided is great - but none of it ties to money paid. 10.2 billion ad requests means dick if there wasn't any money exchanging hands. You said yourself there's no definitive evidence of people making a lot from mobile app advertising, so I'm not sure what point you were defending in the first place.
Well instead of pulling numbers of thin air, how about you provide some rationalization for your 'factor 5 or 10' statements? The post came with lots of details on data sources, how assumptions/estimations were made, the relative effect of error margins etc. Saying 'there are lots of ways he could be off' is meaningless against a rationally founded argument like was made in the post.
It'd be interesting to see a comparison to "traditional" distribution methods, eg shareware, web apps, and so on. Maybe it's just that writing small software applications doesn't pay?
Why does the author assume normal distribution (bell curve) for apps' revenues? In reality app sales are similar to those of books and follow power law distribution. A few bestsellers will account for large chunk of overall app sales. Then there will be a very long tail of unprofitable apps.
Therefore all of his numbers and his final conclusion are wrong. People do not write iPhone apps in order to achieve some sort of 'average' income. They hope to strike it lucky and get a disproportionately large payoff.
Where are you getting the normal distribution information from?
"This is the average, remember, it is not the median. The average skews too high because of the long tail. There are a few who make several millions, who distort the average number, so it is not true that half of iPhone App Developers earn more, and half less, than $3,050 per year."
He references the long tail you mention, and describe exactly what you mean about some people making a lot, but because of distribution and how users find and download apps - its more akin to say - the lottery - than actual market strategy.
Some will make money. Most of them will be development/contractor shops that charge out-the-ass for mobile apps to companies who want a "mobile presence." These medium to large companies won't realize that the money they are losing isn't worth it until its happened a couple of times. Then they'll stop coming back.
That said, independent developers making money on that app store directly is a complete crap-shoot. Very few get rich, lucky ones make a very modest living, more get a hobbyist return, most get dick - and some don't even get the money they did earn from Apple.
Therefore all of your rebuttal and final conclusion are wrong. How many books have you written on the subject?
Note: The reason he uses a normal distribution is because it would actually help DISPROVE his thesis, a normal distribution would make it easier for an app developer to make money, not harder. When the normal distribution showed a shitty return - he reminded us it was actually worse.
Unfortunately that's not necessarily true. A normal distribution is just vastly different than an exponential distribution. Using the central limit theorem allows you to expect the mean to be normally distributed around your samples, but that's about all.
The reality is that taking an average over an exponential distribution is largely meaningless. There are an infinite number of distributions that would create that exact mean. Some of them not at all profitable for certain apps, others very profitable.
The problem with using an average over this distribution is that it doesn't give you anything to work from. You can't figure out who is profitable and who isn't, or how high up the curve you need to be to be profitable. Taking an average over all of the apps in the app store is like taking the average revenue of every website that tries to make money on the internet. It's a meaningless number.
At the end he compares the low numbers in averages to a single anecdotal example of something that had a 100 Million downloads. On the one hand he dismisses the few highly successful appstore apps but then uses another singular example of a highly successful app to recommend a different platform. Overall the methodological approach is deeply flawed.
I could go on, but ultimately, I found this analysis not very insightful. As with any new channel, it takes some time to figure out what works and what doesn't. Who is going to buy and who isn't. In almost all software the distribution is exponential where the top 10 to 20% make over 90% of the revenue. The same is true of the app store.
It all comes back to fundamentals. Find an unmet or under-served need in the market, figure out how big that market is, figure out how much it's going to cost to fill that need, make sure your app fills the need, and start trying to sell it. Then once you've built up a sales platform, then you start scaling it.
> Where are you getting the normal distribution information from?
The author spends much effort estimating an 'average' app income and costs. Talking about averages does not make any sense in case of power law distribution. He is using Gaussian approach which is a wrong model for given phenomena. Bringing skewness/kurtosis/whatever to the table doesn't help a thing since he has completely mis-classified the problem.
> That said, independent developers making money on that app store directly is a complete crap-shoot.
Can the same can be said about entrepreneurs in general? What is an 'average' income of an entrepreneur (including failed ones)? Is it worth it? Do you aim for this dismal income when you start a business?
Scalable business model is completely different animal from a non-scalable one (i.e. selling your personal time as a developer, consultant etc.). Quite a few developers expect from iPhone apps the same they are used to in their contracting/salaried careers.
Why does the author assume normal distribution (bell curve) for apps' revenues?
He doesn't. He tries to estimate the median precisely because he doesn't actually know the distribution although in several places he specifically mentions that it's likely not 'normal'. He's going for the median because it's more informative than the average, given the uncertainty about the distribution. It's a little moot, anyway, since the average figures are pretty lousy and given the most likely distribution, the median just makes it worse.
"former Nokia executive"
[number froth]
"What I have been telling my readers and followers and this blog and in my books, that the real money is in true mass market services like SMS, MMS and WAP. That is where the REAL money is."
This guy makes a strong case for skating to where the puck used to be.
I'd say there are a lot of pucks, and he's suggesting skating towards some of the less sexy ones. The app store is shiny and new and fun for hackers, but his point about market size is pretty valid.
All iphones are SMS-capable. Not all SMS-capable phones are iphones. Just like Twitter never killed blogging, smart phones still haven't killed plain old dumb phones, either.
Some people seem to assume that building a profitable app is entirely about luck, and not about having the insight and ability to develop something better than what is in the store currently. Many of these app are developed by beginners and casual hobbyists and, frankly, just aren't very good. Thinking you can work to be in the top 10% of this crowd isn't necessarily unrealistic.
> Half of all developers will earn less than $682 per year. Do you still think this is a good business idea?
I'm one of those developers. And do you know why? Because it's not my business. I wanted to make some apps. I didn't put in a huge effort.
For the numbers to mean anything, you should filter out the 90% (or whatever) of apps that aren't intended to be part of a serious, profitable business.
The numbers, assuming his inputs are reasonably accurate, still mean something - most people trying to make money selling iPhone apps don't make a great deal. It's easy to distinguish between apps that are trying to make money and apps that aren't - apps trying to make money are not free. The sort of filtering you want is next to impossible - you're asking that only the apps that are trying to make money but really mean it are to be considered.
He doesn't address something that maybe you're touching on, indirectly - unlike the markets where someone makes zillions on SMS voting for a popular TV show or selling Tetris to feature phone users, the iPhone app market is very accessible to J. Random Hacker. Compared to the previous age of mobile development, it's a major improvement - same device (more or less), same screen size (more or less), same framework, no complicated permission needed from the carrier, payment taken care of, etc, etc. Plus, you never hear of anyone saying they program J2ME or BREW or Symbian apps for fun.
No, 3 of my 4 apps are paid, even though I'm not making a serious effort to make money. Why shouldn't they be? I don't mind making a little money.
Just because filtering the numbers to get useful results is infeasible doesn't mean we should pretend averages across the entire store mean anything for a person who sets out to build an app store oriented business.
It reminds me of all the psychological studies that use inadequate controls just because adequate ones for what they want to do would cost trillions of dollars. Then they claim to have done legitimate science. But the standards of science don't lower themselves to what data we can easily get.
I'd say your scenario represents a tiny segment (not 90% of paid apps). Most people who build apps for fun put it out for free. If they put a price on it, it's much less likely to be used. Where is the fun in that?
Well, I'd guess it represents a much larger segment than you guess. Neither of us has any data, nor does the article. So the only rational conclusion is to accept our ignorance, right?
Or at least one should carefully document every single wild guess being made when coming up with some numbers, and carefully identify them as very plausibly being very large sources of error (so that no readers mistakenly doubt that the numbers might be off by a factor of 10 and think it's actually based on hard data).
Introverts, remember. The fun is making the app, seeing it with a price tag on it is just a bonus. And it's so easy to put a price tag on, there's no reason not to. It might even cover the developer fees.
No, 3 of my 4 apps are paid, even though I'm not making a serious effort to make money. Why shouldn't they be? I don't mind making a little money.
Nobody said they shouldn't be. The point is 'serious effort' vs anything else is not readily measurable. This is something you say, rather than something you do. 'Trying to make money' vs 'Not trying to make money' is measurable - if you're not trying to make money, you don't charge. If you charge, you are obviously trying to make money, even if it's very little money.
Just because filtering the numbers to get useful results is infeasible doesn't mean we should pretend averages across the entire store mean anything for a person who sets out to build an app store oriented business.
The numbers are still useful, whatever their caveats and limitations. At the very least, they are more useful than non-numbers or numbers-that-ought-to-be-obtained-by-some-method-that-doesn't-actually-produce-measurable-numbers.
But the standards of science
I don't think there was any claim to reaching the 'standards of science'. It seems a little silly to bring them up, though - the author's sources and methods are well described. There's probably plenty of room to take issue there. But you can't trot out 'the standards of science' if your standard is some underivable set of data that just happens to support your viewpoint.
There is nothing useful about those numbers, there's nothing based on hard fact, it's all conjecture, but worst he's presenting conclusions off the numbers that make no sense. In my mind this line summed up his total lack of understanding:
Today if you decide to develop a free app, you pay your $35,000 development cost, then you find your free app competing against just a modest set of 60,750 rival free apps on the iPhone. Imagine if you are your consumer, scrolling past that set, to find you.
Firstly 35k assumes a decent sized app, not a few day job like a lot of these apps are. Secondly a lot of these apps have NO rivals. Search 'Nottingham Cinema times'. 2 apps. But guess what. Those guys also make 'Leicester Cinema Times', 'Birmingham Cinema Times', 'London Cinema Times', etc., etc.
All the same tiny piece of code.
And what about all the hoo-hah about those guys who had 20,000 apps like 'Pamela Anderson Pictures' that were eventually pulled? Guess what. Search 'Claire Danes', 'Kiera Knightly', any female actress. 59 p app for each one of them. Probably thousands of them. Same piece of code.
And look at some of the numbers he throws about, 2.1 billion app capable phones vs. 80 million iPhones. I'm sorry, but add up ALL of Europe and ALL of North America and you've not got 2.1 billion people. But I bet a large proportion of those iPhones are in that market. And I bet the vast majority of app purchases are in that market.
And worst of all for those 2.1 billion phones. THERE'S NO MARKET.
Roughly 50% of the people I know have an iPhone. And I'm probably downplaying that number. Young professionals with large disposable incomes. Just the sort of people you can make a lot of money off.
He's not comparing like for like, he's not realising that the median earnings per serious software shop is actually higher much higher than the average per app because of so much dross and he claims a 'typical' app costs 35k without considering that they probably only asked the serious software shops and not people like the poster above you or those shops which are pumping out 100s of apps per week.
Well, you can keep saying that but you have no numbers and no particularly concrete criticisms of his argument. Maybe he's not comparing like for like. Maybe all your friends have iPhones. Maybe you've forgotten many people outside of North America and Europe own mobile phones. The $35k, as mentioned in other comments in the thread, has very little bearing on his central argument that iPhone apps don't make much money.
And maybe he's made a complete hash of it. But at least we know how he got there.
he's not realising that the median earnings per serious software shop is actually higher much higher than the average per app because
Because what? What's a 'serious software shop'? How do you come to this conclusion? Right or wrong, I have a reasonably good idea how the author of the article came to his. Can't say the same for yours.
I think it is part of the author's point but it isn't a strong argument. The author does a lot of speculative math on developer return in the iOS app market and then makes the implication that the market for feature-phones is vastly larger. However, just because there is a larger population of such devices does not mean that the addressable market is larger. The author does not share or speculate what kind of money could be made in that market.
This sounds very much like the way things worked when I was working in the AAA games business as well. >90 percent of all titles are lossleaders, and the few that are hits make up for the lost money developing the others.
My guess is that most branches of entertainment are similar. Movies, TV, music etc. There's no such thing as a steady, guaranteed income when it comes to things like this (in my experience/opinion).
That doesn't mean making apps is not a viable business. Just not for everyone who tries.
I thought it was already understood that the model of "create a $1 app and sell 10k of them per month" was long over. The App store is still a relatively new market, so people will continue to learn how to be successful on it.
I just got an iPad and started using the App store for the first time in my life and guess what? Out of the 5 things I wanted to use the pad for, 3 of them didn't exist at all. There is plenty of space in this market I would say. Just not for iFart anymore.
I'm also curious as to what you wanted to see. When I picked up my friend's iPad (a month or two ago) I struggled to find a good finance app that actually gave good charting and numbers for stock market options and commodity futures. I know I'm not the only one who would be interested in that AND I know that those of us who are have fairly deep pockets.
Yea, in my experience it seems the apps are pretty focused. There are a lot of games, a lot of toys and a lot of professional made apps in specific areas (e.g. drawing/photo editing).
When reading this, it helps to remember that the author is a former Nokia executive that does consulting and speaking to Big Business. He mentions Hilton Hotels, Rite Aid, and Walgreens.
I don't know how you would split out Brand apps vs hobbyist vs junk apps, but he should have mentioned that. I'd be surprised if there are more than 10K Brand apps like the ones he appears to be most familiar with.
I don't care for the 35k iPhone App and 3k WAP site numbers that he pulled out of thin air. From my experiences, the costs are not so disparate.
iPhone vs. WAP is a poor comparison because an iPhone app and a WAP site are two different digital tactics that address completely different objectives.
Brands are not buying iPhone apps to get the same utility that is available from a WAP site. They are buying them to make their brands appear technically savvy, and to increase engagement.
For the sake of argument, let's assume the analysis is off by two orders of magnitude (i.e. assume half of businesses will earn less than $70K per year).
Can anyone justify an investment in development of an iPad-only productivity software? Do you think a startup can raise capital based on such economics?
My takeaway: Selling AppStore apps/ads isn't THE business model. It should be one of the channels amongst others.
I think a lot of us are instinctively reacting negatively to this article, and I don't think it is because it's news we just don't want to hear. There is one point that the author fails to take into consideration: future growth.
Anyone who has used iPad or iPhone or an Android device can tell that devices like these, not Symbian or WAP or Brew or whatever, are the future. Those other platforms might catch up, but for now they lag abysmally behind in terms of user experience. And so while they might outnumber iOS and Android for now, that numerical advantage can not last.
Walk around a Y-Combinator event (or CES, or E3, or anywhere else where leading edge alpha geeks congregate) and count phones. I'd be willing to wager a lot of money you'd see a bunch of iOS and Android devices, a few blackberries, and a smattering of ancient nokia and samsung free phones held by users who "just want to make calls" (and thus aren't going to be reachable by any apps at all, WAP or Java or otherwise).
So, yes, a company developing an app today for iOS or Android isn't going to make their money back on the platform as it stands in any reasonable amount of time. But a company or developer who positions themselves to be on top of a platform that is rising meteorically (and will displace literally billions of feature phones over the next decade and a half as moore's law drops silicon costs by a factor of 1000) is going to do well.
Hype is about future expectations. When expectations rise above exponential growth in our industry, those expectations usually turn out wrong. But the mobile market has a current penetration of over 3 billion people and I'll wager practically every phone on the planet will be a "smartphone" in under 15 years. That's a lot of headroom for growth.
My main issue with this article is that the author assumes that all developers operate equally. He averages the individuals who build apps in their spare time and might make thousands of dollars as 'extra' income, with the large app companies who spend tremendous resources on building apps that get high returns. When he crunches his numbers, he gets results that are probably very far from the actual reality of things.
It's interesting that he's a big business guy. I would restate his title as: "the Apple store is for suckers or smallfry, if you're a big company."
And, he's right. Big companies do take $50k+ to create mobile apps. Big companies do have much better things to do with their money; they can add far more value at greater scale. Of course, Jane developer might not be in the same boat.
Another interesting confounding variable: he clearly conceives of developers as 'one-app' developers. And, he's right that this doesn't pay on the apple store. There is just, frankly, some randomness in which apps tip on the store -- most developers have figured this out already, and of course Apple gives links so that developers have an easier time cross promoting.
You're absolutely right. But where's the fun in a headline like that.
More to the point, I think if you read the rest of his blog, and take the perspective of some of the larger international companies, going for gold with the iPhone won't be the best business strategy.
Tomi has given some case studies of how MMS has worked for car dealers in Germany, and even campaign promoters in Australia. There is this under-exploited niche called mobile marketing, which relies on WAP, SMS, MMS, etc which could give pretty high ROI for large companies (eg: BMW)
Especially if you take a B2B perspective, what he says makes huge sense.
I'd have preferred to see a more detailed breakdown of apps. It may be a terrible market for utility apps. Or, for apps that are more feature than product. How many apps are truly products with solid business models? How do these apps do?
Or, how does the picture look for games? Especially now that game developers can embrace a virtual currency / goods business model. They can get all the distribution benefits of being a free app while still making (potentially much more) money over a longer period of time. Or, do these apps not count as apps because they're too close to the web-based games that are doing so well on Facebook?
If you're a developer, looking at industry-wide numbers is good, but it's better to research the apps in the niche you plan on entering.
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[ 2.8 ms ] story [ 162 ms ] threadA similar analysis could be done of PC shareware software authors, with similar results.
> So the best case of how few apps get to divide that 1.43 Billion dollars over the past 2 years, is 164,000 actual apps
You do have a point with in app purchases, but I doubt that they would significantly skew the numbers - they would make them worse for developers of paid apps, in fact. Given the other optimistic decisions the article has when dealing with numbers, I think that ignoring in app purchases fits with it: it's a best case scenario for paid apps.
It would be quite interesting to see how much money has been made through in app purchases, though. Not merely anecdotes, but the percentage of free apps which have in app purchases, and the average/median income through in app purchases in those apps.
He also fully acknowledges that there are some extreme examples that make it big, but that half of all paid apps are currently making less than $680/year.
This is a pretty thorough analysis.
I agree, the chance of one app being the runaway success that affords one an early retirement is pretty remote, but the tech press loves to promote the huge success stories, and many others love to follow them.
You can treat apps the way the music industry treats songs with the ambition that 1 in 100 is a "hit", and cover your losses with the success of the few...
...or you can provide a unique app that serves an existing need and charge a reasonable price (far above the typical app store prices).
There are countless examples of the latter, and not only are they successful financially but they serve to raise the standards of quality and compensation for the other type of participants.
One of my friends met the developer of Air Horn. The #1 downloaded free app for endless weeks. He said the guy had over three hundred apps on the App Store until he hit it big. Really big.
http://itunes.apple.com/us/app/air-horn-free/id348184873?mt=...
That is hardly a blanco card for writing apps in Lua. Anyway - not my problem.
These numbers were really taken out of the ass of a troll.
In any space with great competition and where your product is scalable, few will make enough money to justify their investment.
Also many paid apps are part of a bigger picture, the iPhone app is not the only revenue stream they have.
That's reality, now deal.
If someone is churning 20 in a month and then getting 1364$ * 20 = 27,280$ over two years for one months work that's not bad.
PS: The average app has probably only been out for 1 year so it may be reasonable to double these numbers. Basically, anything released yesterday is unlikely to have generated much revenue, averaging ALL apps over a 2 year earning period is silly.
First off, in app purchases are not included. Secondly, his argument against free apps is simply that the reach is smaller than other platforms. Finally, he acknowledges that the median paid app get fewer than 1000 downloads.
The 25-50K number for development costs is way off for the median app. Something like $5K-$10K is more in line for most of the apps I'm seeing (but I work cheap), and I've done a couple small ones (probably more representative of the bottom half of the distribution) for clients in 3 days' time.
Simply saying that targeting an iDevice leaves out 97% of the total population might be meaningful to an advertiser trying to gain a wide reach, but it means less to a developer, who is mostly interested in 1) getting an app installed on the device and 2) getting impressions. The fact that the average iPhone user has downloaded 80 free apps is a good thing for a developer.
Let me know how much money you make doing iPhone apps with AdMob. I'll be here.
So maybe developers are advertisers, but they are not buying ads, they are selling ad space in their app. The numbers for iPhone and iPod Touch devices from last September should be interesting to developers (http://techcrunch.com/2009/11/09/admob-is-approaching-100-mi...):
In September, AdMob served up 10.2 billion ad requests across 15,000 mobile Web sites and apps. About 28 percent of those were from iPhones and iPod Touches, with Android growing fast, making up another 7 percent. And if you look at only smartphones, Apple devices accounted for 48 percent of ad requests, with Android coming in second at 17 percent.
That's nearly 3 billion iPhone/iPod impressions in a month, just from AdMob. There are some key pieces of missing information - like the breakdown of the 15,000 request sources, especially web app versus native app - that would enable some more interesting analysis. But just saying that the iPhone reach is small doesn't really address the usage patterns of iPhone users versus other smartphone users.
Maybe you can't make decent money on ad-driven apps. I don't know. I haven't tried. The closest I can come to any information are a few anecdotes from usenet posts that claim anywhere from 10's of dollars to 100's of dollars a day in ad revenue. Not useful at all. But that doesn't make saying that iPhones are only 3% of the market a "full analysis."
As a sole developer, you require not only the technical knowledge to complete the initial job of writing the software that attracts the traffic to generate revenue, but you also must rely on yourself to place and promote it adequately to have significant returns enough to cover both investments of time and energy.
"80 apps" is great news for a developer if a good percentage of them are yours, serving your ads. Otherwise, its at best 1/80th of a chance they are running your ads, but probably worse as each app is not created equal. If yours is a "killer app" that is use most often, its more than likely not ad-driven unless a guy likes playing iChess on the shitter.
All of the data you provided is great - but none of it ties to money paid. 10.2 billion ad requests means dick if there wasn't any money exchanging hands. You said yourself there's no definitive evidence of people making a lot from mobile app advertising, so I'm not sure what point you were defending in the first place.
But, don't we say that only one in ten start-ups makes it? So, as a baseline, why expect more than one in ten apps on the App Store to be profitable?
Therefore all of his numbers and his final conclusion are wrong. People do not write iPhone apps in order to achieve some sort of 'average' income. They hope to strike it lucky and get a disproportionately large payoff.
"This is the average, remember, it is not the median. The average skews too high because of the long tail. There are a few who make several millions, who distort the average number, so it is not true that half of iPhone App Developers earn more, and half less, than $3,050 per year."
He references the long tail you mention, and describe exactly what you mean about some people making a lot, but because of distribution and how users find and download apps - its more akin to say - the lottery - than actual market strategy.
Some will make money. Most of them will be development/contractor shops that charge out-the-ass for mobile apps to companies who want a "mobile presence." These medium to large companies won't realize that the money they are losing isn't worth it until its happened a couple of times. Then they'll stop coming back.
That said, independent developers making money on that app store directly is a complete crap-shoot. Very few get rich, lucky ones make a very modest living, more get a hobbyist return, most get dick - and some don't even get the money they did earn from Apple.
Therefore all of your rebuttal and final conclusion are wrong. How many books have you written on the subject?
Note: The reason he uses a normal distribution is because it would actually help DISPROVE his thesis, a normal distribution would make it easier for an app developer to make money, not harder. When the normal distribution showed a shitty return - he reminded us it was actually worse.
The reality is that taking an average over an exponential distribution is largely meaningless. There are an infinite number of distributions that would create that exact mean. Some of them not at all profitable for certain apps, others very profitable.
The problem with using an average over this distribution is that it doesn't give you anything to work from. You can't figure out who is profitable and who isn't, or how high up the curve you need to be to be profitable. Taking an average over all of the apps in the app store is like taking the average revenue of every website that tries to make money on the internet. It's a meaningless number.
At the end he compares the low numbers in averages to a single anecdotal example of something that had a 100 Million downloads. On the one hand he dismisses the few highly successful appstore apps but then uses another singular example of a highly successful app to recommend a different platform. Overall the methodological approach is deeply flawed.
I could go on, but ultimately, I found this analysis not very insightful. As with any new channel, it takes some time to figure out what works and what doesn't. Who is going to buy and who isn't. In almost all software the distribution is exponential where the top 10 to 20% make over 90% of the revenue. The same is true of the app store.
It all comes back to fundamentals. Find an unmet or under-served need in the market, figure out how big that market is, figure out how much it's going to cost to fill that need, make sure your app fills the need, and start trying to sell it. Then once you've built up a sales platform, then you start scaling it.
The author spends much effort estimating an 'average' app income and costs. Talking about averages does not make any sense in case of power law distribution. He is using Gaussian approach which is a wrong model for given phenomena. Bringing skewness/kurtosis/whatever to the table doesn't help a thing since he has completely mis-classified the problem.
> That said, independent developers making money on that app store directly is a complete crap-shoot.
Can the same can be said about entrepreneurs in general? What is an 'average' income of an entrepreneur (including failed ones)? Is it worth it? Do you aim for this dismal income when you start a business?
Scalable business model is completely different animal from a non-scalable one (i.e. selling your personal time as a developer, consultant etc.). Quite a few developers expect from iPhone apps the same they are used to in their contracting/salaried careers.
He doesn't. He tries to estimate the median precisely because he doesn't actually know the distribution although in several places he specifically mentions that it's likely not 'normal'. He's going for the median because it's more informative than the average, given the uncertainty about the distribution. It's a little moot, anyway, since the average figures are pretty lousy and given the most likely distribution, the median just makes it worse.
This guy makes a strong case for skating to where the puck used to be.
All iphones are SMS-capable. Not all SMS-capable phones are iphones. Just like Twitter never killed blogging, smart phones still haven't killed plain old dumb phones, either.
It is pretty funny that the author includes WAP as one.
I'm one of those developers. And do you know why? Because it's not my business. I wanted to make some apps. I didn't put in a huge effort.
For the numbers to mean anything, you should filter out the 90% (or whatever) of apps that aren't intended to be part of a serious, profitable business.
He doesn't address something that maybe you're touching on, indirectly - unlike the markets where someone makes zillions on SMS voting for a popular TV show or selling Tetris to feature phone users, the iPhone app market is very accessible to J. Random Hacker. Compared to the previous age of mobile development, it's a major improvement - same device (more or less), same screen size (more or less), same framework, no complicated permission needed from the carrier, payment taken care of, etc, etc. Plus, you never hear of anyone saying they program J2ME or BREW or Symbian apps for fun.
No, 3 of my 4 apps are paid, even though I'm not making a serious effort to make money. Why shouldn't they be? I don't mind making a little money.
Just because filtering the numbers to get useful results is infeasible doesn't mean we should pretend averages across the entire store mean anything for a person who sets out to build an app store oriented business.
It reminds me of all the psychological studies that use inadequate controls just because adequate ones for what they want to do would cost trillions of dollars. Then they claim to have done legitimate science. But the standards of science don't lower themselves to what data we can easily get.
Or at least one should carefully document every single wild guess being made when coming up with some numbers, and carefully identify them as very plausibly being very large sources of error (so that no readers mistakenly doubt that the numbers might be off by a factor of 10 and think it's actually based on hard data).
Nobody said they shouldn't be. The point is 'serious effort' vs anything else is not readily measurable. This is something you say, rather than something you do. 'Trying to make money' vs 'Not trying to make money' is measurable - if you're not trying to make money, you don't charge. If you charge, you are obviously trying to make money, even if it's very little money.
Just because filtering the numbers to get useful results is infeasible doesn't mean we should pretend averages across the entire store mean anything for a person who sets out to build an app store oriented business.
The numbers are still useful, whatever their caveats and limitations. At the very least, they are more useful than non-numbers or numbers-that-ought-to-be-obtained-by-some-method-that-doesn't-actually-produce-measurable-numbers.
But the standards of science
I don't think there was any claim to reaching the 'standards of science'. It seems a little silly to bring them up, though - the author's sources and methods are well described. There's probably plenty of room to take issue there. But you can't trot out 'the standards of science' if your standard is some underivable set of data that just happens to support your viewpoint.
Today if you decide to develop a free app, you pay your $35,000 development cost, then you find your free app competing against just a modest set of 60,750 rival free apps on the iPhone. Imagine if you are your consumer, scrolling past that set, to find you.
Firstly 35k assumes a decent sized app, not a few day job like a lot of these apps are. Secondly a lot of these apps have NO rivals. Search 'Nottingham Cinema times'. 2 apps. But guess what. Those guys also make 'Leicester Cinema Times', 'Birmingham Cinema Times', 'London Cinema Times', etc., etc.
All the same tiny piece of code.
And what about all the hoo-hah about those guys who had 20,000 apps like 'Pamela Anderson Pictures' that were eventually pulled? Guess what. Search 'Claire Danes', 'Kiera Knightly', any female actress. 59 p app for each one of them. Probably thousands of them. Same piece of code.
And look at some of the numbers he throws about, 2.1 billion app capable phones vs. 80 million iPhones. I'm sorry, but add up ALL of Europe and ALL of North America and you've not got 2.1 billion people. But I bet a large proportion of those iPhones are in that market. And I bet the vast majority of app purchases are in that market.
And worst of all for those 2.1 billion phones. THERE'S NO MARKET.
Roughly 50% of the people I know have an iPhone. And I'm probably downplaying that number. Young professionals with large disposable incomes. Just the sort of people you can make a lot of money off.
He's not comparing like for like, he's not realising that the median earnings per serious software shop is actually higher much higher than the average per app because of so much dross and he claims a 'typical' app costs 35k without considering that they probably only asked the serious software shops and not people like the poster above you or those shops which are pumping out 100s of apps per week.
Well, you can keep saying that but you have no numbers and no particularly concrete criticisms of his argument. Maybe he's not comparing like for like. Maybe all your friends have iPhones. Maybe you've forgotten many people outside of North America and Europe own mobile phones. The $35k, as mentioned in other comments in the thread, has very little bearing on his central argument that iPhone apps don't make much money.
And maybe he's made a complete hash of it. But at least we know how he got there.
he's not realising that the median earnings per serious software shop is actually higher much higher than the average per app because
Because what? What's a 'serious software shop'? How do you come to this conclusion? Right or wrong, I have a reasonably good idea how the author of the article came to his. Can't say the same for yours.
I wonder how many of those folks have phones that allow them to participate meaningfully in an application marketplace.
Science is how we know things. This article doesn't help us know very much, because it's so sloppy with its numbers.
My guess is that most branches of entertainment are similar. Movies, TV, music etc. There's no such thing as a steady, guaranteed income when it comes to things like this (in my experience/opinion).
That doesn't mean making apps is not a viable business. Just not for everyone who tries.
I just got an iPad and started using the App store for the first time in my life and guess what? Out of the 5 things I wanted to use the pad for, 3 of them didn't exist at all. There is plenty of space in this market I would say. Just not for iFart anymore.
I don't know how you would split out Brand apps vs hobbyist vs junk apps, but he should have mentioned that. I'd be surprised if there are more than 10K Brand apps like the ones he appears to be most familiar with.
iPhone vs. WAP is a poor comparison because an iPhone app and a WAP site are two different digital tactics that address completely different objectives.
Brands are not buying iPhone apps to get the same utility that is available from a WAP site. They are buying them to make their brands appear technically savvy, and to increase engagement.
Can anyone justify an investment in development of an iPad-only productivity software? Do you think a startup can raise capital based on such economics?
My takeaway: Selling AppStore apps/ads isn't THE business model. It should be one of the channels amongst others.
Anyone who has used iPad or iPhone or an Android device can tell that devices like these, not Symbian or WAP or Brew or whatever, are the future. Those other platforms might catch up, but for now they lag abysmally behind in terms of user experience. And so while they might outnumber iOS and Android for now, that numerical advantage can not last.
Walk around a Y-Combinator event (or CES, or E3, or anywhere else where leading edge alpha geeks congregate) and count phones. I'd be willing to wager a lot of money you'd see a bunch of iOS and Android devices, a few blackberries, and a smattering of ancient nokia and samsung free phones held by users who "just want to make calls" (and thus aren't going to be reachable by any apps at all, WAP or Java or otherwise).
So, yes, a company developing an app today for iOS or Android isn't going to make their money back on the platform as it stands in any reasonable amount of time. But a company or developer who positions themselves to be on top of a platform that is rising meteorically (and will displace literally billions of feature phones over the next decade and a half as moore's law drops silicon costs by a factor of 1000) is going to do well.
Hype is about future expectations. When expectations rise above exponential growth in our industry, those expectations usually turn out wrong. But the mobile market has a current penetration of over 3 billion people and I'll wager practically every phone on the planet will be a "smartphone" in under 15 years. That's a lot of headroom for growth.
And, he's right. Big companies do take $50k+ to create mobile apps. Big companies do have much better things to do with their money; they can add far more value at greater scale. Of course, Jane developer might not be in the same boat.
Another interesting confounding variable: he clearly conceives of developers as 'one-app' developers. And, he's right that this doesn't pay on the apple store. There is just, frankly, some randomness in which apps tip on the store -- most developers have figured this out already, and of course Apple gives links so that developers have an easier time cross promoting.
More to the point, I think if you read the rest of his blog, and take the perspective of some of the larger international companies, going for gold with the iPhone won't be the best business strategy.
Tomi has given some case studies of how MMS has worked for car dealers in Germany, and even campaign promoters in Australia. There is this under-exploited niche called mobile marketing, which relies on WAP, SMS, MMS, etc which could give pretty high ROI for large companies (eg: BMW)
Especially if you take a B2B perspective, what he says makes huge sense.
Or, how does the picture look for games? Especially now that game developers can embrace a virtual currency / goods business model. They can get all the distribution benefits of being a free app while still making (potentially much more) money over a longer period of time. Or, do these apps not count as apps because they're too close to the web-based games that are doing so well on Facebook?
If you're a developer, looking at industry-wide numbers is good, but it's better to research the apps in the niche you plan on entering.
http://communities-dominate.blogs.com/brands/2010/06/smartph...
What?